Request to Pay: The Future of Payments?
Request to Pay or R2P is being hailed as the “next big thing” in instant payments. Some even predict that R2P points to an imminent future where they become the preferred alternative to cards. So, what is Request To Pay?
Request To Pay is an emerging real-time payments channel that can be used by people and businesses to collect payments instantly. It is growing in popularity, with large rollouts happening in many parts of the world. Request to Pay schemes in Europe include PayUK’s Request To Pay in The UK, and SEPA Request To Pay (SRTP) in the EU.
How Does It Work?
Request To Pay is a “pull payment” request that is initiated by a payee (for example, a business) from a payer (a customer) for a specific amount. The payer receives the request on their smartphones or tablets, usually on a banking or fintech app. Before transferring any funds from an account, the customer can review all details of the payment. Once they approve the request, the amount automatically moves from the payee’s account to the payer’s.
R2P is not a specific payment method, rather it is a framework to make a request, based on which both parties can take action. When a payer receives a request to pay, they can choose to pay in full, pay in part, ask for more time, or decline to pay and start a dialogue with the requester.
Consumers and businesses can use R2P to pay bills, settle invoices, make point-of-sale payments, advance payments, and even pay in installments.
Why is R2P Becoming Popular Now?
Globally, real-time payments have come into their own, leading to R2P emerging as a favourable option for quick, digital payments. R2P makes payments fast and safe, improves the end consumer experience, and gives more clarity and control to consumers and businesses. It is comparatively cheaper than other payment methods and reduces the overall costs for users.
A Banking Circle poll found that most people (61%) think Request to Pay has the biggest potential to change invoicing, followed by e-commerce, P2P, and POS payments. R2P could also become an alternative to direct debits; and could be combined with Buy Now, Pay Later schemes. In a pan-European context, R2P can make account-to-account payments across countries in the region more accessible for people.
While R2P continues to pick up speed, there is room for more innovation and creative partnerships between banks, fintech players, regulators, and governments. And we are seeing growing encouragement for more creative partnerships amongst ecosystem players.
Is Request to Pay Secure?
Yes, it is safe, and for a variety of reasons. First, users do not have to disclose their sensitive payment details as a Request to Pay is sent to a payer’s proxy payment address. Second, the payer can approve or decline the request, which gives them greater control. Third, the payer uses a trusted mobile device app, typically a banking or fintech app, to accept the request and make the payment.
How Does R2P Benefit Businesses and Consumers?
For business: Request To Pay increases security and helps reduce fraud. A request to pay shares detailed info, such as invoice and remittance details, with the payer; the payer can review this info to verify the authenticity of the payee before accepting the request. Because this authentication process is automatic, it removes the need for manual intervention and reconciliation. R2P also improves clarity and communication between a business and its customers.
For customers: Request to Pay improves the user experience for customers by enabling a biller and a payee to communicate openly and gives them more flexibility in scheduling payments and installments. Users can easily manage all their bills and payments from one place and make full or partial payments on the go without having to set them up in advance.
How Does Request to Pay Help E-commerce Payments?
Request to Pay gives customers more freedom to choose how and when they can pay. Sellers can track and reconcile payments in real-time and improve transparency with customers and suppliers. A R2P ensures sellers receive their funds on time and better manage their accounts.
Here are five ways in which they help e-commerce payments.
1. Timely bill clearance and reconciliation
Request to Pay allows timely bill clearance and reconciliation based on real-time data. Smaller businesses don’t have to waste time chasing payments; they can communicate through R2P and monitor payment status in real-time, which improves transparency and communication between both parties.
Large businesses don’t have to waste time reconciling payments, as each request and related payments contain a customer reference. This helps them to easily reconcile payments, saving time, money, and resources.
A request to pay offers consumers the option to review and manage all payment requests from their app. They can choose to pay now or later and negotiate the payment terms with the payee. They can also keep a tab of payments that are due to avoid delays and resulting penalties.
2. Greater clarity in payment settlement
A Request to pay gives more clarity to both the payer as well as the payee. Both parties can negotiate the payment terms and track payment status in real-time, improving transparency and making financial documenting easier. This builds more trust and transparency, which benefits the long-term relationship between the payer and the payee.
3. Enables more secure transactions
Request to Pay involves the exchange of payment-related data between payer and payee before the actual transaction of money, which makes it a safe experience for both parties. Additionally, no personal data is shared between either party, thus removing payment-related risks. Moreover, features like ‘digital signing’ and ‘authentication’ further boost the security in each transaction.
4. Improves interoperability
Request to Pay strengthens interoperability between banks, payment service providers, merchants, and consumers. Since all the involved parties are equally aware of all interactions and transactions, each party can operate with clarity and confidence, improve collaboration and create space for developing better services.
5. Enables more streamlined payments
Many existing digital payment methods require the payer and payee to be on the same platform. Factors like processing costs can become a limitation for either the payer or the payee. In this case, a standard framework like Request to Pay is a better option with none of these limitations.
The core idea behind R2P is to encourage and facilitate digital real-time credit transfers and make payments safer, easier, and more reliable within the European market. Even as it promises to make payments simpler, further adoption will be based on the results of ongoing research.
We are still in the early days of R2P, but widespread adoption will be determined by more partnerships and collaboration in the future. And as R2P finds greater acceptance, the day is not far when it could become the standard for real-time payments across Europe. Stay tuned to see how this shapes up.
Jose Augustine is the Chief Business Development Officer at Novalnet AG with extensive experience in European payment industry and a knowledge powerhouse.